| IN THE
January
28, 2010 ISSUE |
Institutions Once Bitten, But Not So
Shy
Institutional investors are making big plans to invest
more heavily in commercial properties in 2010, despite major write-downs
that have left some portfolios worth half of their value since the
market peak in 2007.
Leading the way as one of the pension fund bellwethers is the California
Public Employees’ Retirement System (CalPERS), with $206 billion in
total assets under management.
Its chief investment officer, Joseph Dear, says he is not afraid to jump
back into the steaming cauldron that is the commercial real estate
investment market, even after being badly burned in the last two
years.
High-Beta Markets May Provide Opportunities as Market
Recovers
Real estate pricing is a function of supply and demand.
Since each market has different underlying demand drivers and supply
constraint characteristics, investment returns vary. Compared to the
NCREIF Property Index (NPI), returns for some markets are historically
more volatile than others.
Market volatility, defined as beta (β), is not necessarily a negative
feature. Markets with higher volatility often outperform the NPI index
in an upturn of the real estate cycle. However, like leverage, this
characteristic can also accentuate a market decline.
Applying the financial concept of beta suggests a potential investment
strategy during the anticipated real estate recovery, with an
overweighting of high-beta property sectors and
markets.
Distress Investors Say Real Estate Offers Best Opportunities in
2010
Institutional and hedge fund investors in distressed debt
say real estate offers the greatest opportunities for investment this
year, according to a new survey, the North American Distressed Debt
Market Outlook 2010. Commercial real estate, in particular, was named a
top investment choice. However, respondents note that as the market
recovers, yields may not be as high as they were when distress was more
severe.
A steady flow of workouts as commercial leases expire and investors fall
into delinquency and default is expected to continue to provide
distressed investment opportunities in commercial real estate, according
to the survey. The largest group of respondents (41%) singled out real
estate as offering the best investment opportunities, while the
second-largest group (33%) gave equal weight to consumer products,
financial services and the stock of large industrial companies.
The interest in real estate represents a departure from last year, when
just 19% of respondents indicated they would focus on real estate
investment.
|
